Facts
Saptarshi Ghosh (the tax payer) was a salaried employee of TCS Limited (employer), an Indian company. He was on deputation to the USA for rendering services as an employee of TCS Limited.
The tax payer’s pay structure remained unaffected due to deputation though he received “living allowance” as additional compensation to meet the daily expenses in the USA on food, accommodation, electricity, telephone, laundry etc.
During the deputation, the tax payer was not entitled to take any other job in USA and was not absorbed in USA office.
The tax payer had filed his return of income for the tax year 2005-06 claiming exemption for the living allowance received treating it as allowance granted on tour to meet the ordinary daily charges incurred by him in the USA. Additionally, the tax payer had claimed treaty relief on the tax paid in the USA on the living allowance.
The assessing officer [AO] had held that the exemption provided in the Income-tax Act, 1961 (Act) was for allowances in the nature of daily allowance, transfer travelling allowance, etc. and not for living allowance. The AO had considered the living allowance as a taxable perquisite but allowed treaty relief for the taxes paid in the USA on the same. Further, the AO directed the tax payer to pay interest for default in payment of advance tax on the pending liability.
The assessee preferred an appeal before the Commissioner of Income-tax (Appeals) [CIT (A)]. The CIT(A) upheld the order of AO reasoning that the deputation was not an official tour and hence exemption cannot be claimed under Section 10(14)(i) of the Act. Further, the CIT(A) held that since the living allowance was to meet personal expenses at the place where he ordinarily performed his duties of office, it was in the nature of income in the hands of the tax payer. The CIT(A) also denied the exemption claim for this allowance on the ground that it was not a prescribed allowance under the relevant income-tax rule [Rule 2BB(2)].
The CIT(A) allowed the tax payer’s appeal on the interest levy and deleted the same.
Provision of law
Salary in the form of cash allowance/ benefit is taxable for an employee unless specifically exempted. The Act provides specific exemption for:
Special allowance/benefit, not being in the nature of perquisite, granted to meet the expenses wholly, necessarily and exclusively incurred in the performance of duties of an office or employment of profit to the extent to which the expenses are actually incurred. [Section 10(14)(i) read with Rule 2BB (1)]
Any allowance granted to meet the personal expenses at the place where the duties of office or employment of profit are ordinarily performed or at a place where the employee ordinarily resides or to compensate for increased cost of living (as may be prescribed and to the extent prescribed). [Section 10(14)(ii) read with Rule 2BB (2)]
Issues before the Tribunal
Whether the tax payer was to be treated as being on tour and living allowance paid to him was to be exempted from tax under section 10(14)(i)?
Whether the tax payer was liable for interest for default in payment of advance tax?
Observations and ruling of the Tribunal
The salary structure of the tax payer remained the same and additional amounts were paid for the purposes of routine expense in USA.
The deputation agreement further indicates that the tax payer will continue to receive salary and benefits in India during the period of deputation. This shows that the place of posting has not changed which is the basic ingredient for deciding whether a person has been transferred or was on tour.
Factors like entitlement to take the family during deputation, duration of posting and employee’s consent for deputation cannot be a conclusive in deciding whether a person has been sent on tour or transfer.
On a combined reading of the facts and considering the circumstances of the case, the tax payer is to be treated as being on “tour”.
There is no dispute that living allowance is in the nature of income. The issue in consideration is whether such income is exempt as per the conditions laid down in the Act.
The deputation agreement refers the living allowance as additional compensation payable to the tax payer for living and other expenses. Hence, the allowance is in the nature of special benefit granted to meet the expenses wholly, necessarily and exclusively incurred in the performance of duties while on tour.
The decisions granting exemption for living allowance for non-residents coming to India are to be considered on the same footing as for Indians going abroad. The tax payer being on tour is eligible to claim exemption under section 10(14)(i) of the Act.
The decision of Mumbai Tribunal in Madanlal Mohanlal Narang [2007 104 ITD 190] will squarely apply to the case of the tax payer. Accordingly, it is not open to the revenue to call for the details of expenses incurred by the tax payer unless the specific allowance is disproportionately high compared to his salary or unreasonable with reference to the nature of his duties.
Since living allowance is not taxable, the interest levy cannot be sustained.
Source : Income-tax officer, Ward-27(4), Kolkata v. Saptarshi Ghosh - [2011]15 taxmann.com 328
Saptarshi Ghosh (the tax payer) was a salaried employee of TCS Limited (employer), an Indian company. He was on deputation to the USA for rendering services as an employee of TCS Limited.
The tax payer’s pay structure remained unaffected due to deputation though he received “living allowance” as additional compensation to meet the daily expenses in the USA on food, accommodation, electricity, telephone, laundry etc.
During the deputation, the tax payer was not entitled to take any other job in USA and was not absorbed in USA office.
The tax payer had filed his return of income for the tax year 2005-06 claiming exemption for the living allowance received treating it as allowance granted on tour to meet the ordinary daily charges incurred by him in the USA. Additionally, the tax payer had claimed treaty relief on the tax paid in the USA on the living allowance.
The assessing officer [AO] had held that the exemption provided in the Income-tax Act, 1961 (Act) was for allowances in the nature of daily allowance, transfer travelling allowance, etc. and not for living allowance. The AO had considered the living allowance as a taxable perquisite but allowed treaty relief for the taxes paid in the USA on the same. Further, the AO directed the tax payer to pay interest for default in payment of advance tax on the pending liability.
The assessee preferred an appeal before the Commissioner of Income-tax (Appeals) [CIT (A)]. The CIT(A) upheld the order of AO reasoning that the deputation was not an official tour and hence exemption cannot be claimed under Section 10(14)(i) of the Act. Further, the CIT(A) held that since the living allowance was to meet personal expenses at the place where he ordinarily performed his duties of office, it was in the nature of income in the hands of the tax payer. The CIT(A) also denied the exemption claim for this allowance on the ground that it was not a prescribed allowance under the relevant income-tax rule [Rule 2BB(2)].
The CIT(A) allowed the tax payer’s appeal on the interest levy and deleted the same.
Provision of law
Salary in the form of cash allowance/ benefit is taxable for an employee unless specifically exempted. The Act provides specific exemption for:
Special allowance/benefit, not being in the nature of perquisite, granted to meet the expenses wholly, necessarily and exclusively incurred in the performance of duties of an office or employment of profit to the extent to which the expenses are actually incurred. [Section 10(14)(i) read with Rule 2BB (1)]
Any allowance granted to meet the personal expenses at the place where the duties of office or employment of profit are ordinarily performed or at a place where the employee ordinarily resides or to compensate for increased cost of living (as may be prescribed and to the extent prescribed). [Section 10(14)(ii) read with Rule 2BB (2)]
Issues before the Tribunal
Whether the tax payer was to be treated as being on tour and living allowance paid to him was to be exempted from tax under section 10(14)(i)?
Whether the tax payer was liable for interest for default in payment of advance tax?
Observations and ruling of the Tribunal
The salary structure of the tax payer remained the same and additional amounts were paid for the purposes of routine expense in USA.
The deputation agreement further indicates that the tax payer will continue to receive salary and benefits in India during the period of deputation. This shows that the place of posting has not changed which is the basic ingredient for deciding whether a person has been transferred or was on tour.
Factors like entitlement to take the family during deputation, duration of posting and employee’s consent for deputation cannot be a conclusive in deciding whether a person has been sent on tour or transfer.
On a combined reading of the facts and considering the circumstances of the case, the tax payer is to be treated as being on “tour”.
There is no dispute that living allowance is in the nature of income. The issue in consideration is whether such income is exempt as per the conditions laid down in the Act.
The deputation agreement refers the living allowance as additional compensation payable to the tax payer for living and other expenses. Hence, the allowance is in the nature of special benefit granted to meet the expenses wholly, necessarily and exclusively incurred in the performance of duties while on tour.
The decisions granting exemption for living allowance for non-residents coming to India are to be considered on the same footing as for Indians going abroad. The tax payer being on tour is eligible to claim exemption under section 10(14)(i) of the Act.
The decision of Mumbai Tribunal in Madanlal Mohanlal Narang [2007 104 ITD 190] will squarely apply to the case of the tax payer. Accordingly, it is not open to the revenue to call for the details of expenses incurred by the tax payer unless the specific allowance is disproportionately high compared to his salary or unreasonable with reference to the nature of his duties.
Since living allowance is not taxable, the interest levy cannot be sustained.
Source : Income-tax officer, Ward-27(4), Kolkata v. Saptarshi Ghosh - [2011]15 taxmann.com 328
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